ECONS 101

SHARES

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Shares can be defined as the individual portion of the company's capital owned by shareholders. It is the interest which a Shareholder has in a company. In other words, share is a unit of capital measured by a sum of money. The Company Act defines a Share as "The Interest in a Company's Share Capital of a Member who is entitled to share in the income of such company."

TYPES OF SHARES:

There are two major types of shares. These are Preference and Ordinary Shares.

1. PREFERENCE SHARES- is the type of share which has priority i terms of dividend payment and repayment of capital in the event of winding up. They have a fixed rate of dividends

Features of Preference Shares:

* They have no Voting Rights.

* They have fixed rates of Interest.

* Holders receive dividends before others.

* They are entitled to return of capital first at winding up.

Types of Preference Shares:

a. Cumulative Preference Shares- They have priority in the share of dividends over others. Cumulative shares receive arrears of dividends not paid before other shares, i.e. when no profit is declared, their dividends will be carried forward to the following year.

Features of Cumulative Preference Shares:

* No voting rights.

* It has a fixed rate of dividend.

* They receive arrears of dividend.

b. Participating Preference Shares- They are shares which are entitled to further percentage of dividends after the ordinary shares have received a specified percentage of profits. Participating Preference Shares have the right to participate equally with the ordinary shareholders in surplus dividends apart from their fixed dividends.

Features of Participating Preference Shares:

* They receive fixed rate of dividends like other preference shares.

* They also participate in further dividends after all others have been paid.

* They usually receive dividends before ordinary shares.

c. Redeemable Preference Shares- They are shares which have prior claims to dividends before all other preference shares. The Owners of the Business can buy these shares after some time. The shares are issued to finance a particular project. The Redemption of Preference Shares must not be regarded as amounting to reduction of capital.

Features of Redeemable Preference Shares:

* They have Prior claims before other preference shares.

* They can be bought back.

* They are issued out to finance a particular project.

d. Non-Cumulative Preference Shares- In this type of Share, the dividend does not accumulate from one year to another. Where a Company fails to pay dividend in a particular year, it cannot be carried forward.

e. Non-Participating Preference Shares- They are the opposite of participating preference shares. They are not entitled to further dividends after the ordinary shares have been paid.

2. ORDINARY SHARES- are also known as Equities. The Ordinary Shareholders are the real owners of the business. The Holders are the risk bearers and they receive their dividends after all other shares have been paid. They can vote and be voted for. They have no fixed rate of dividend.

Features of Ordinary Shares:

* There is no fixed rate of dividend.

* They have voting rights.

* The holders are the real owners of the business.

* They receive dividends last, after others have been paid.

Types of Ordinary Shares:

a. Deferred/Founders' Shares- They are shares which are entitled to the remainder of profit after all other shares (i.e. Preference & Ordinary) have been paid. They are usually issued to the founders or promoters of the business.

Features of Deferred Shares:

* They have more voting rights.

* The holders are entitled to the remainder of the dividends after all others have been paid.

* They are issued to the founders of the business.

b. Preferred Ordinary Shares- They are shares which receive dividends after preference shares have been paid. They have preference over other classes of ordinary shares.

NOTE: PARTS OF THIS POST WERE CULLED FROM TONAD ESSENTIAL ECONOMICS FOR SENIOR SECONDARY SCHOOLS BY C.E ANDE.  WE AT EDU-MADE-EASY RESPECT THIS CRAFT TOO MUCH TO DENY ITS ORIGIN. THANK YOU

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